A 90-day pause on President Donald Trump’s new tariff regime failed to halt the sharp selloff in U.S. Treasury bonds, with yields on long-term government debt continuing to rise, signalling growing market unease over the broader direction of U.S. economic policy.
The White House announced this week that while a temporary suspension would apply to the recently introduced “reciprocal tariffs,” a 10% baseline tariff will remain in place for all trading partners except China, which is now subject to a 125% rate on its exports to the United States.
The announcement helped lift U.S. stock markets, with corporate earnings forecasts buoyed by reduced short-term cost pressures. However, the bond market reacted differently. The yield on the 30-year Treasury rose by 0.072 percentage points, marking its steepest three-day gain since the onset of the COVID-19 pandemic. The 10-year yield increased by 0.151 points, its sharpest three-day advance since mid-2022. Bond yields rise as prices fall.
These shifts are significant because long-term Treasury yields influence key borrowing costs across the U.S. economy, including mortgage and credit card rates. The sustained pressure on prices suggests that investors remain focused on structural inflation risks, rather than being reassured by the temporary tariff relief.
Analysts attribute the continued selloff to several factors. Markets remain concerned about persistent inflation, driven by expansionary fiscal policy and tighter immigration controls, both of which are features of Trump’s current economic approach. Despite some investors seeking safety in Treasuries amid fears of a recession triggered by tariff escalation, others believe the trade measures will entrench a permanently higher cost base for the U.S. economy.
Peter Boockvar, chief investment officer at Bleakley Financial Group, noted that this second camp sees tariffs not as a one-off inflation shock but as a catalyst for a long-term rise in prices. As a result, foreign holders of U.S. debt may be repositioning away from Treasuries.
Recent Treasury data support this possibility. In January, foreign investors sold long-term Treasuries for a third consecutive month, with Canada leading the selloff. Despite a solid uptake of 10-year bonds at a recent auction—where indirect bidders, including foreign central banks, purchased nearly 88% of available bonds—concerns persist that major overseas holders are reassessing their exposure.
The behaviour of foreign exchange markets may be contributing. The Japanese yen and several European currencies have weakened against the dollar this year, giving central banks a motive to liquidate dollar assets in order to defend their own currencies. Analysts have also pointed to unusual trading activity during Asian market hours as evidence of strategic reallocation by foreign actors, including potentially China.
Louis-Vincent Gave of Gavekal Research has speculated that China may be divesting from U.S. Treasuries in preparation for moving into gold or currencies of countries with which it has more stable political relations. “The fact that some of the biggest downside moves seem to be occurring during Asian hours might support this explanation,” he wrote.
Concerns have also been raised about broader market conditions. Liquidity has reportedly declined in recent sessions, with hedge funds unwinding complex trades and amplifying market movements. As prices fall more quickly in less liquid markets, the decline in Treasuries may be exacerbated by technical factors beyond macroeconomic fundamentals.
The continued rise in yields is likely to complicate the U.S. administration’s stated goal of making borrowing more affordable. Treasury Secretary Scott Bessent has reiterated the government’s desire to bring down the 10-year yield, which underpins household lending rates, but recent market movements suggest limited influence over the trend. Although the Treasury has pledged to maintain current issuance levels for long-term bonds, the impact of these measures appears muted in the current climate.
Trump’s campaign promise to “make America affordable again” faces increasing headwinds as rising borrowing costs filter through to consumers. Elevated yields threaten to undermine access to credit at a time when inflationary pressures remain and trade policy uncertainty persists.
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Trump Pauses Global Tariffs for 90 Days, But Raises Duties on China to 125%
